Goldman Bets on an Unprecedented Economic Overhaul in Saudi

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SOURCE: Bloomberg

Time: March 15, 2018

Goldman Sachs Group Inc. is doubling down on its plans for Saudi Arabia in a bet that sweeping economic reforms will draw investors to the kingdom despite a turbulent corruption crackdown.

The U.S. lender, which has traditionally advised companies and governments on takeovers and fundraising efforts in the region, plans to deploy its own money in the kingdom for the first time, Wassim Younan, Goldman’s chief executive for the Middle East and North Africa, said in an interview in London. To help identify such opportunities, the bank is hiring veteran banker Ammar Al-Khudairy, who previously oversaw Morgan Stanley’s operations in the country, he said.

The bank’s expansion in the world’s largest oil exporter is good news for the kingdom’s Crown Prince Mohammed bin Salman, who’s trying to secure his grip on power without alienating the international investors he needs to transform the economy into a financial powerhouse. Other global banks have also proved to be unfazed by the tumultuous changes in Saudi Arabia as the prince, known as MBS, consolidates his authority with steps such the temporary detainment of senior princes and prominent businessmen starting in November.

Massive Transformation

“With the exception of China, I have not witnessed in my 34-year career in the business a sovereign undergoing such massive economic and social transformation,” Younan said. “We remain keen and continue to prospect for opportunities in the kingdom to deploy and invest the firm’s own capital alongside our clients.”

Al-Khudairy will take over in April as the non-executive chairman for Goldman in the country, subject to regulatory approval, and become regional adviser for the Middle East and North African markets. He’s also the founding partner and chairman of private equity firm Amwal Al Khaleej, according to his biography on Morgan Stanley’s website.

The banker will help to further bolster Goldman’s presence in the kingdom and make principal investments in the country, said Younan, who himself has been with the New York-based bank since 1992 and became a partner in 2004.

Saudi Arabia has embarked on a range of reforms to diversify its economy after a plunge in crude prices crippled the oil-rich nation’s finances. Those changes include a potential listing of Saudi Arabian Oil Co., the kingdom’s crown jewel, in the hope that it will attract more international investors to its bourse and boost capital-market activity. Goldman is among the major banks who are likely to be appointed to manage what’s likely to be the world’s largest IPO, people with knowledge of the matter said earlier this year.

Unfazed Banks

Other global investment banks are also bolstering their operations in Saudi Arabia to take advantage of business opportunities arising from the state’s plan for privatizations and investments in non-oil related sectors. Deutsche Bank AGhas said it’s expanding in the kingdom as the outlook for bond and stock sales improves, while Citigroup Inc. recently won its first local advisory mandate since returning to Saudi Arabia after a 13-year absence.

“We anticipate a meaningful pick-up in M&A and capital markets activity going forward,” Younan said, adding that the bank has doubled its Riyadh-based staffing in the last two years. His firm recently received approval to trade equities in the kingdom, and plans to start those operations at the end of the month.

Goldman hired Eyas AlDossari from HSBC Holdings Plc at the end of last year as head of its investment banking business for Saudi Arabia. It also poached Mohammed Al Awad from the British bank to head its equities business in the kingdom.

Saudi Deals

The bank is one of the firms chosen by Saudi Arabia to help arrange the sale of a dollar-denominated bond, people familiar with the matter said earlier this month, as the country prepares to borrow the equivalent of $31 billion this year to bridge an expected budget deficit and fund growth plans after its economy shrank last year. It advised Kingdom Holding on its Saudi Fransi stake purchase and is also advising Saudi British Bank on its merger talks with Alawwal Bank.

Among other deals, Saudi Arabian hospital operator Al Hammadi Co. for Development & Investment is close to hiring Goldman to advise on merger talks with National Medical Care Co., people familiar with the matter said in February. Jabal Omar Development Co. also hired Goldman Sachs to advise on a potential merger with Umm Al Qura Development, the company said in November.

“We constantly look at our staffing requirements in relation to the commercial activity,” Younan said. “Given what’s happening in the kingdom, that should give you a fair idea of which direction our staffing levels could be heading in future.”

— With assistance by Matthew Martin


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